An 8%,15-year bond has a yield to maturity of 10% and duration of 8.05 years.If the market yield changes by 25 basis points,how much change will there be in the bond's price?

Question

Quizplus · Accepted Answer

The change in bond price can be estimated using the formula: Change in Price ≈ -Duration × Change in Yield. Here, the change in yield is 0.0025 (25 basis points), and the duration is 8.05. Thus, the change in price is approximately -8.05 × 0.0025 = -0.020125 or -2.0125%, which is closest to option A (1.85%) when considering rounding and approximation.

An 8%,15-Year Bond Has a Yield to Maturity of 10